On-Line Discounting: Friend Or Foe?

NEW YORK? Industry executives are divided on the concept of whether hotel rooms should be sold at a discount via the Internet. While some agree being able to sell off unused room nights at a price? which in many instances is named by the buyer? is a great yield management tool, others argue the commoditization of the hotel room will put too much control in the consumers? hands, and that retail room pricing will go away forever. Internet hotel room pricing is growing at a rapid pace. Jupiter Communications said total on-line dollar expenditures for hotel bookings for this year will reach $633.7 million. Priceline.com reports that in September it set weekly sales records of 15,000 rooms and 16,000 rooms. September hotel room bookings for the service are up over 300% since the beginning of the year. Participating hotels currently exceed 4,000 nationwide. Meanwhile, Expedia.com has unleashed Hotel Price Matcher, a direct competitor to Priceline and airs radio commercials that tell consumers to laugh at the idea of paying full price for a hotel room. Hotel Reservations Network, (www.hoteldiscount.com) said it is booking 1.2 million room nights a year via its on-line booking system and that sales are accelerating at a rapid speed. Meanwhile, other web sites are popping up every day, hawking hotel rooms at a fraction of their original cost. How is the hotel industry dealing with all of this? Curtis Nelson, president and CEO of Carlson Hospitality Worldwide, is not a fan of the Priceline.com model. ?As an industry, we have to be careful,? he said. ?If we let Priceline.com price our products we are making a huge mistake. We will lose the ability to yield manage. We have to make sure we have all rates available across all channels. As soon as the customer doesn?t trust you and thinks they are getting a better price on the Internet, there is a problem.? Nelson pointed out that the biggest challenges are in the three-and-a-half- and four-star market where it?s difficult for customers to differentiate between products. ?Right now our customer has told us they think of our product as a commodity,? said Nelson. One Wall Street analyst who covers the lodging industry said this new wave of Internet pricing will have a negative effect on the industry in the long term. ?I think the Internet is a very significant negative for the hotel industry pricing over the next 10 years,? said Jason Ader, managing director of Bear Stearns. ?If the question is, is the Internet a friend or foe, for the hotel owner, it is a foe,? said Ader. ?It empowers the consumer. In the most extreme cases they can pick their price [for a hotel room]. ?Hotels over the past 50 years have been successful in increasing their prices at a higher rate than inflation, in the future it will be harder to do that,? said Ader. While Ader said that the Internet is here to stay and hotels need to be a part of it, he said it will continue to be something hotels need to deal with. ?Consumers can very quickly in five minutes get prices on six hotels in one area. The Internet is a real challenge for hotels, it will make it a lot harder to enjoy the revenue growth they have had historically.? Ader agreed that it is a certain type of hotel product that will have the most challenges. ?We?re talking about the Hiltons, Marriotts, Hyatts, Sheratons, and Wyndhams,? he said. Mike Leven, president/CEO of U.S. Franchise Systems, said he doesn?t see a product like Priceline.com making the hotel room a commodity. ?The argument that this is a commoditization of hotel rooms is ridiculous, because hotels rooms have traditionally been commodities,? he said. ?It should be used as a distribution system,? he added. ?Priceline is a 21st century travel agent, they mark up the prices and take the profit. It?s a high tech wholesaler,? he said. ?We view Priceline not as a commodity sale but as an unused inventory sale, it is part of rate management of a hotel,? said Leven. Leven agreed that product different